Student loans can have an outsized impact on your credit score. Most student loan borrowers have more than one loan showing on their credit report. If they pay on time and keep their loans in good standing, the credit scoring models will increase their score. And suppose they fall behind and enter delinquency. In that case, their student loan servicer will send negative information to the credit bureaus for each loan. But what happens to your score if your student loan shows closed on your credit report?
Disclaimer: Although I am a student loan lawyer, this article contains general information and should not be taken as legal advice. If you want legal advice that pertains to your specific situation, you should schedule a free 10-minute consultation with me.
Why would a student loan report as closed on a credit report?
There are several reasons a student loan account might be reported as closed. Some reasons may need your attention, while others aren't a cause for concern.
- You paid off or refinanced a student loan. Paying off a student loan closes the account on your credit report. Since you've finished paying off your debt to that creditor, there's no need for it to remain active on your report. Consolidation and refinancing, on the other hand, pay off your student loan debt with one creditor but give you a new loan with the same or different lender in exchange.
- You defaulted on your student loan debt. If you fail to make on-time payments, the federal government and private lenders will report a default status to the major credit bureaus. From there, the late payment history will remain on your report for 7.5 years.
- The credit bureau made a mistake. Mistakes happen. Sometimes your education loan may show that it's closed even though you're still paying on it. When that happens, you can file a dispute with the credit reporting bureau to have your account put back on your report. You'd only want to do this if you had a positive payment history. Bringing back negative information can ruin your good credit.
Is a student loan account closed due to inactivity? Unlike credit cards and over revolving accounts, student loans are never closed due to inactivity. A deferment, forbearance, and $0 monthly payments under an income-driven repayment plan will all keep your account active even if you're technically not paying.
Why are my defaulted student loans not showing on my credit report? Defaulted student loans stop showing on your credit report about 7 years after you default. Federal student loans default after 270 days of missed payments. Private student loans typically default or charge off about 120-180 days after your last required student loan payment.
Why did my student loans disappear from my credit report? Your student loan disappeared from your credit report because your loan servicer made a mistake, or you fell into default more than 7 years ago. Remember, even if your loans no longer appear on your credit report, you're still legally obligated to repay them.
How long do closed student loan accounts stay on your credit report?
How long a closed student loan account stays on your credit report depends on how you handled your monthly payments.
- Student loans in good standing: If you consistently made on-time student loan payments until you paid your loans off, your student loans can remain on your credit report for up to 10 years. That's good news. Payment history has the most positive influence on your credit score.
- Delinquent and defaulted student loans: If you defaulted or had late payments on your loans, the negative information would be removed from your credit report after 7½ years from the date the loans were first reported as delinquent. However, if you discharge student loan debt in bankruptcy, then the bankruptcy will remain on your credit report for up to 10 years.
Should I try to remove closed student loans from my credit report?
It's unwise to remove paid-off student loans, mortgages, credit cards, and other accounts from your credit report if they show a positive payment history. Your credit score will continue to receive a boost from those accounts.
But if you have derogatory credit from your student loans because you missed payments or defaulted, you'll want that information off as soon as possible. You can use annualcreditreport.com to get your free credit report from Equifax, Experian, or TransUnion every 12 months to verify negative information has been removed as required by federal law. If you notice that negative information is still lingering, you can file a dispute.
Note: Many credit scoring models exclude paid-up collections accounts. However, some lenders use older models. So you may want to hire a credit repair professional to dispute the negative information.
Do closed student loan accounts affect credit score? Closed student loans accounts can cause your credit mix to change, which can affect your score. Credit mix refers to the types of accounts you have — installment loans, revolving accounts, credit card debt, mortgages, etc. It counts for 10% of your FICO score.
What should I do if my student loans fell off my credit report?
There's no statute of limitations for federal student loan debt. So even if your loans no longer show in your credit history, you still owe your loans. They didn't go away. And that means the U.S. Department of Education can still garnish your wages, take your tax refund, and offset your Social Security Benefits.
In addition, your defaulted federal student loans will remain on the CAIVRS database, and that will stop you from getting a federally backed mortgage (FHA, VA, etc.) and qualifying for new Federal Student Aid.
You can avoid these consequences by getting out of default by:
- negotiating a federal student loan settlement
- applying for a Direct Consolidation Loan
- entering into the loan rehabilitation program
Neither option will put the payment history back on your report if it's already been removed from your credit report after 7.5 years. However, loan consolidation and loan rehabilitation will put the loan amount back on your credit report. Adding the loan balances back to your report shouldn't hurt your FICO score.
Plus, you qualify for affordable repayment options, loan forgiveness, and new Federal Student Aid to go back to school once you're out of default.
Note: Private student loans do have a statute of limitations. If the time limit runs out, a private lender could still sue you. But you would have a defense that the time to collect has passed.
What should you do about your loans? Take action.
The bottom line: Your student loans are likely still a problem even though they're closed on your credit report. The current freeze on the interest rate and collections due to the coronavirus pandemic is the perfect time to fix your student loan mess. Let's talk. I want to help you develop a strategy to deal with your debt.
Schedule a free 10-minute call with me today. We can go over your options together and help you begin picking up the pieces.